Sinotrans may get fresh parental injection

Freight forwarder Sinotrans could get a further injection of logistics-related assets from parent company Sinotrans & CSC by 2014 in a move that would shift all its logistics operations into the Hong Kong-listed subsidiary.

Zhang Jianwei, executive director and president of H share Sinotrans, said Sinotrans had planned to inject a second batch of assets into the company before Sinotrans merged with CSC in March 2009.

The move was stopped by the State Council, pending a restructuring of the merged company, although Zhang said the proposal had been revived.

'The plan in two or three years is for Sinotrans Ltd to consolidate the logistics business from the entire group,' he said, adding the move would contribute to the Hong Kong company's growth.

He did not detail the assets that could be injected.

Zhang said Sinotrans was also interested in acquiring logistics-related companies on the mainland and overseas. 'But they will have to make sense with our core business. They will have to be profitable.'

He said potential international targets would be smaller- or medium-sized logistics companies because taking over larger operations 'would result in indigestion and that's not good'.

In May, Sinotrans (HK) Logistics agreed to pay GBP18.15 million (HK$233.49 million) for 35.3 per cent of InterBulk, a British company specialising in chemical and food logistics.

Following the acquisition, Sinotrans 'will be integrating its international and domestic petrochemical logistics activities to build expertise in that field', Zhang said yesterday in reviewing a 14.6 per cent rise in the company's interim net profit to 438.2 million yuan (HK$535 million).

Revenue rose 3 per cent to 20.6 billion yuan in the first six months of this year, up from 20 billion yuan a year earlier.

Freight forwarding remained the biggest contributor, generating 17 billion yuan in the first half. This was an increase of just 0.3 per cent year on year, or 78.7 per cent of total revenue. The sector also contributed 59.7 per cent of operating profit, or 338.6 million yuan, a rise of 31.9 per cent from 256.6 million yuan last year. But while revenue from shipping and marine transport rose 33.3 per cent to 2.52 billion yuan in the half, the operating loss deepened to 82.4 million yuan from a 50.9 million yuan loss last year.

Zhang said this reflected the start-up costs of a domestic shipping operation together with high charter costs on four ships on long-term hire.

He was confident the marine transport division would be profitable next year because these expensive six-year charters would finish at the end of this year and the ships returned to their owners. Overall, Zhang expected Sinotrans to benefit from eight logistics initiatives promoted by the State Council. He said the mainland's tax bureau was also consulting the logistics industry about possible tax breaks.